Hedge fund winners & losers emerge as year ends on better note
This was the year to ridicule hedge funds. Pension funds, politicians, Warren Buffett, even hedge fund managers themselves, they all had something to say about the disappointing performance, high fees and market saturation.
Well-known managers from Ray Dalio to John Paulson saw performance on their funds range from flat to double-digit losses, while some distressed-debt investors like Jason Mudrick benefited from the rally in commodities prices. Strategies focused on macro trends and equity hedges, which have seen returns crimped by swollen stock-market valuations and ultra-low interest rates — produced the worst returns.
But as the year draws to an end, the industry’s gotten an unexpected pick-meup. The ripple across markets from the surprise victory of US President-elect Donald Trump bolstered returns — reversing the fortunes for some — and may prove to be a boon going forward. With his policies expected to increase interest rates, produce a wider dispersion in earnings across industries and trigger more merger activity, hedge funds may soon be put back to work.
“The tide has definitely turned,” said Adam Blitz, chief investment officer at Evanston Capital Management, which farms out money to hedge funds. “Since the election I've definitely sensed a bit of a change in attitude among folks who are saying, ‘Boy, we don’t know exactly what the future’s going to hold, but it’s unlikely to be more of the same.”’ Macro funds disappoint While hedge funds betting on macroeconomic trends had one of the worst-performing strategies in 2016, the volatility spurred by Trump's win changed the course for managers such as Brevan Howard Asset Management and Rubicon Fund Management. Brevan Howard’s master fund rallied in November, erasing earlier declines and bringing returns for the year to 2.8 per cent, an investor letter shows. Rubicon's Global Fund surged 21 per cent last month, returning it to a profit of 2.2 per cent from a loss, a person familiar with the matter said. Some macro funds like Dymon Asia Capital (Singapore)'s $721 million Asia Currency Value Fund, which focuses on exchange rates and gold, benefited this year from bearish bets on the region's currencies — especially on the yen weakening against the dollar. That fund gained 22 per cent last month and surged 45 per cent this year through November. Game changing’ Other marquee macro funds saw deep losses pared. The Pure Alpha II fund, run by Dalio's Bridgewater Associates, was down 10.3 per cent at the end of September and has since surged, bringing losses through November 30 to 0.2 per cent, two people said. Moore Capital Management's Macro Managers fund trimmed losses for the year to 1.23 per cent through December 1, a person said. Moore’s founder, Louis Bacon, said in a November 28 letter to investors that he’s “exceedingly upbeat” for the first time in several years about the “game-changing trading opportunities that lie ahead.” Moore pointed to Trump’s victory and the prospects for higher interest rates, a stronger dollar, booming corporate sector and improving market liquidity. “The recent election in the United States has, in our view, launched nothing short of a sea change in the potential opportunity set for trading markets globally,” Bacon said in the letter. Long-short equity Long-short equity hedge funds produced big losers and winners. The strategy returned an average two per cent in the first 11 months of the year on an assetweighted basis, according to Hedge Fund Research Inc. In Europe the $9.2 billion Lansdowne Developed Markets Fund dropped 18 per cent and Crispin Odey's flagship fund slumped 48 per cent. His fund gained more than 20 per cent in the two trading days after the UK's June vote to exit the European Union, known as Brexit, but slipped after British stocks rebounded on a weaker pound.